“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a five year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Packaging Corp of America (NYSE: PKG)? Today, we examine the outcome of a five year investment into the stock back in 2014.
| Start date: | 08/12/2014 |
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| End date: | 08/09/2019 | ||||
| Start price/share: | $65.84 | ||||
| End price/share: | $101.13 | ||||
| Starting shares: | 151.88 | ||||
| Ending shares: | 175.23 | ||||
| Dividends reinvested/share: | $12.46 | ||||
| Total return: | 77.21% | ||||
| Average annual return: | 12.14% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $17,722.71 | ||||
The above analysis shows the five year investment result worked out quite well, with an annualized rate of return of 12.14%. This would have turned a $10K investment made 5 years ago into $17,722.71 today (as of 08/09/2019). On a total return basis, that’s a result of 77.21% (something to think about: how might PKG shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Packaging Corp of America paid investors a total of $12.46/share in dividends over the 5 holding period, marking a second component of the total return beyond share price change alone. Much like watering a tree, reinvesting dividends can help an investment to grow over time — for the above calculations we assume dividend reinvestment (and for this exercise the closing price on ex-date is used for the reinvestment of a given dividend).
Based upon the most recent annualized dividend rate of 3.16/share, we calculate that PKG has a current yield of approximately 3.12%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.16 against the original $65.84/share purchase price. This works out to a yield on cost of 4.74%.
Another great investment quote to think about:
“Behind every stock is a company. Find out what it’s doing.” — Peter Lynch
